Leopold Aschenbrenner, the former OpenAI researcher who launched the AI-focused hedge fund Situational Awareness, told investors that he will “fight another day” after the fund plunged 67% in July, according to a letter reviewed by multiple media outlets. The dramatic drawdown underscores the volatility and risk inherent in high-conviction, AI-centric investment strategies.
In the letter, Aschenbrenner acknowledged the severity of the losses, describing them as “very expensive scars” and admitting that the fund’s risk management was “not good enough” during the market turmoil. He emphasized that the fund’s core thesis — that AI will transform the global economy — remains intact, but that execution and timing need to be refined.
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What Happened to the Fund in July?
July 2025 was a brutal month for AI-related equities, with the tech-heavy Nasdaq Composite falling more than 8% as investors rotated out of high-flying AI names amid concerns about overvaluation and rising interest rates. Aschenbrenner’s fund, which reportedly held concentrated positions in a small number of AI companies and used employ to amplify returns, was hit disproportionately hard.
The 67% loss is among the steepest monthly declines ever recorded for a major hedge fund. For context, the average equity hedge fund lost roughly 2% in July, according to preliminary data from HFR. The fund’s assets under management, which were reportedly around $100 million at the start of July, would have shrunk to roughly $33 million by month’s end.
Background: Aschenbrenner’s Rise and the Fund’s Launch
Aschenbrenner, 26, became a prominent figure in the AI policy and investment world after leaving OpenAI in 2024. He founded Situational Awareness in early 2025 with backing from several high-profile tech investors, including former Google CEO Eric Schmidt and venture capital firm Founders Fund. The fund’s name derives from Aschenbrenner’s widely circulated essay on AI’s potential to reshape global power dynamics.
The fund’s strategy involved investing in companies that Aschenbrenner believed would benefit most from the rapid advancement of AI, including chipmakers, data center operators, and AI software developers. He also took concentrated positions in a few private AI companies, which added to the risk profile.
Implications for AI-Focused Investing
The fund’s dramatic losses serve as a cautionary tale for investors who have piled into AI-related assets with high expectations and low risk awareness. While the long-term potential of AI remains a dominant theme in markets, the July selloff demonstrated that AI stocks are not immune to sharp corrections, especially when valuations become stretched.
“This is a reminder that even the most intellectually compelling investment thesis can be derailed by market timing and risk management failures,” said a portfolio manager at a rival tech-focused fund, who asked not to be named because he was not authorized to speak publicly.
For Aschenbrenner, the path forward is uncertain. He has told investors that he will not raise new capital immediately and will focus on rebuilding the fund’s performance. However, some investors may be reluctant to stay after such a steep loss, and the fund could face redemptions in the coming months.
The situation also highlights the broader challenges facing AI-focused hedge funds, which have proliferated in recent years as investors seek exposure to the AI boom. Many of these funds have delivered strong returns in 2024 and early 2025, but the July correction exposed their vulnerability to sudden shifts in market sentiment.
Looking ahead, Aschenbrenner’s next moves will be closely watched by both his investors and the wider tech investment community. His ability to recover from this setback will test not only his investment acumen but also his credibility as a leader in the AI space.
